How Russia’s War on Ukraine and the West’s Response Are Impacting Blockchain Technology

When Russia launched an unprovoked invasion of its neighbor and trading partner Ukraine, the world reacted with fear and anger. Western countries, led by the United States and the European Union, immediately imposed tough sanctions on Russian President Vladimir Putin’s regime, including a ban on its access to foreign exchange reserves. The global economy has been rocked by soaring energy and commodity prices, and capital markets are grappling with uncertainty and long-term repercussions from Putin’s aggression and the worst military tragedy on the European continent since World War II.

The cryptocurrency community is also affected by this form. Due to the peer-to-peer nature of blockchain technology, there are many problems with the utility of Bitcoin and other digital assets in war zones and in Russia itself. Since European and American countries exclude some Russian banks from financial infrastructure such as the Swift system, this greatly curbs the purchasing power of ordinary citizens.

In this report, we analyze the role of macroeconomic forces and how blockchain-based solutions can play an important role as the war continues.

How Russia's War on Ukraine and the West's Response Are Impacting Blockchain Technology

Blockchain and web3 have demonstrated their value in unprecedented ways, contributing to humanitarian efforts, providing aid to Ukrainian refugees, and supporting Ukrainian citizens in defending their country against Russian forces. 

Before we dive into the details of these moves, let’s take a look at how Russia and Ukraine are affecting the macroeconomic picture.

Dramatic changes in global markets 

Russia is one of the world’s largest economies and a major energy and commodity producer, while Ukraine is the world leader in wheat production. Russia is the world’s third-largest oil producer, with about 5% of the world’s oil reserves. Half of its exported oil is consumed by European countries, accounting for one-third of European oil consumption.

How Russia's War on Ukraine and the West's Response Are Impacting Blockchain Technology

Russia is also the world’s largest natural gas producer, controlling 25% of the world’s natural gas reserves. Crude oil prices are also skyrocketing as economic sanctions take effect. The same goes for gasoline, natural gas, coal, and heating oil. A surge in electricity prices will affect proof-of-work blockchains like Bitcoin that require high energy inputs.

How Russia's War on Ukraine and the West's Response Are Impacting Blockchain Technology

Russia also has a firm grip on the fertilizer industry due to its high nitrogen production, and is also a major exporter of copper, nickel, palladium and platinum. Copper, nickel, palladium and platinum are elements needed to produce chips and graphics cards for cryptocurrency mining or high-end gaming. Meanwhile, Ukraine is the sixth largest producer of titanium, a metal mainly used in manufacturing, and the third largest producer of neon gas.

financial constraints

Global leaders have also sanctioned Russian banks, while payment service providers have ceased operations in the country.It is estimated that by mid-2021, the Central Bank of Russia will hold about $650 billion in foreign exchange reserves; however, these restrictions will limit this amount to around $230 billion, as 65% of these reserves are in dollars, euros, pounds sterling and gold and other currencies held overseas.

How Russia's War on Ukraine and the West's Response Are Impacting Blockchain Technology

The sanctions also mean that at least seven of Russia’s most important financial institutions will no longer be part of SWIFT, a global information system vital to cross-border payments. Swift is used by more than 11,000 institutions and generates more than 35 million transactions per day.

Similarly, payments giants Visa, Mastercard, American Express and PayPal have all ceased operations in sanctioned countries, depriving millions of users of vital currency channels. While Russian citizens and businesses may eventually find alternatives to Swift, financial constraints will severely damage their economy.

Decentralized Currency System

One of the advantages of blockchain is its ability to enable seamless peer-to-peer transactions without intermediaries, creating assets that are virtually borderless. This decentralized financial ecosystem could prove helpful to millions of Ukrainians and Russians deprived of direct payment gateways.

How Russia's War on Ukraine and the West's Response Are Impacting Blockchain Technology

However, the situation in Russia is more dire and complicated. In addition to PayPal, Visa and MasterCard, payment and money transfer services from Apple (Pay), Google (Pay), Wise, Remitly and TransferGo have also ceased operations in the country, creating additional barriers for Russian working class, They may also be exposed to credit default risk.

As a result, Russia’s credit rating has been significantly downgraded by the most prestigious rating agencies. Standard & Poor’s and Moody’s downgraded Russia’s sovereign rating to junk, while Fitch downgraded Ukraine’s credit rating. In the first seven days of the month, the Russian ruble has depreciated by nearly 33% and is likely to fall further.

How Russia's War on Ukraine and the West's Response Are Impacting Blockchain Technology

To offset the inflationary effect of currency devaluation, cryptocurrencies such as stablecoins, and even other types of digital assets such as NFTs, can be used as hedging tools. We’ve seen this in hyperinflation in countries like Zimbabwe and Venezuela.

However, the advantages that blockchain presents in terms of accessibility, decentralization, security, and storage of value go beyond the economic context of digital currencies. We are witnessing the social potential of an organized crypto community.  

Crypto Community Helps Ukraine

Blockchain has shown its potential to positively impact the global economy in society. This time around, the world saw how celebrities, entrepreneurs and people from different backgrounds collaborated to create a web3 organization called The DAO to support the people of Ukraine and their troubled government.

At a historic moment, Ukraine started receiving donations on different networks. The Ukrainian government received about $10 million in tokens and NFTs (including about $212,000 worth of CryptoPunk #5364) in its Ethereum wallet, most of which were collected after announcing a possible airdrop to contributors. The central authority also has wallets available for the Bitcoin, Polkadot and Tron networks.

How Russia's War on Ukraine and the West's Response Are Impacting Blockchain Technology

Ukraine is one of the first countries to be recognized for the use of cryptocurrencies by the government of a blockchain wallet after El Salvador and Venezuela. The difference is that events in Ukraine mean the first time the government has used them for humanitarian purposes.

Additionally, established blockchain projects like Uniswap and independent DAOs acting like NGOs have joined the Ukrainian cause. The Ukrainian DAO, an initiative by Pussy Riot, a Russian punk rock band who has faced jail time multiple times for publicly protesting the Putin regime, has raised more than $7 million, which will be fully funded. Used to help Ukrainians.

Unchain Ukraine is another example, created by Near Blockchain co-founder and experienced web3 personality Illia Polusokhin. Unchain Ukraine has raised over $2.1 million (most of which came from NEAR) and received donations from nine other networks.

How Russia's War on Ukraine and the West's Response Are Impacting Blockchain Technology

Support for the Ukraine crisis has also come from the NFT space. For example, Reli3f, a humanitarian aid program initiated by Andrew Wang and members of the web3 community. The project consists of 7,400 NFTs from 37 different NFT artists, including Fvckrender, Pablo Stanley, and Defaced, and has raised and distributed at least $1 million worth of ETH to support people in Ukraine.

NFT artists from different circles are also quite active. Activist and artist Shepard Fairey will donate the proceeds of his next collection to humanitarian crises in Eastern Europe. Meanwhile, 200 artists from Ukraine’s most famous art gallery have co-created an NFT piece that will be auctioned off shortly.

How Russia's War on Ukraine and the West's Response Are Impacting Blockchain Technology

Source: Elliptic

According to Elliptic, Ukraine received nearly $60 million in crypto assets from more than 118,000 wallets, including NFTs, a $5 million donation from Polkadot founder Gavin Wood, and a $10 million donation from Binance. Finally, Ukraine used cryptocurrencies to raise funds for its military and humanitarian needs, proving the massive potential of blockchain technology.

So what does this bring to blockchain and crypto in the short term after considering all the macroeconomic implications and realizing the support from web3 type organizations?

What does this mean for blockchain and cryptocurrencies?

The crisis will create a domino effect in different industries and solidify crypto as a potential tool for relief to Ukrainians and ordinary Russian families. 

Demand for cryptocurrencies has been on the rise since recent events, especially in the affected regions. The number of bitcoins bought in hryvnias and rubles hit a nine-month high. The number of bitcoins bought in rubles has at least tripled since February 24, while demand in Ukraine has nearly doubled. The surge in Bitcoin demand has sparked a 6% premium in both regions. And Binance and Kuna slashed the BTC-UAH trade pair in Ukraine at a 6% premium. 

How Russia's War on Ukraine and the West's Response Are Impacting Blockchain Technology

Source: Kaiko

Thanks to the sudden increase in demand for cryptocurrencies, and some help provided by Biden’s cryptocurrency order, the prices of these assets have rebounded, challenging the bear market trend that has been visible since November last year. Bitcoin regained the support line above $38,000 and Ethereum above $2,500. Nonetheless, this is widely expected to be a highly volatile period, which presents an interesting challenge from a trading perspective. 

How Russia's War on Ukraine and the West's Response Are Impacting Blockchain Technology

In addition, the damaging effects of the current business climate and unstable financial environment could trigger the consequences of defaults to larger bank runs and bailouts. This situation will create greater distrust in the central banking system, paving the way for the adoption and identification of digital assets and cryptocurrencies. 

However, if Russia chooses to do so (with cryptography), it is not far-fetched that rival countries may try to ban cryptocurrencies used to circumvent sanctions, especially if a deal is reached with China. While major exchanges such as Kraken and Binance have refused to restrict Russians from using their platforms, companies such as OpenSea and Consensys have begun cutting off blacklisted regions.

It’s also worth mentioning that Russia is no stranger to encryption. The exact amount of cryptocurrencies owned by Russians varies by source, ranging from $22 billion to $220 billion, or 12 percent of the world’s crypto assets. Therefore, they may consider a digital approach. In addition, Russia contributes nearly 14% of the hash power required for Bitcoin mining, making it the third largest Bitcoin mining center in the world, after the United States and Kazakhstan.

The adoption of blockchain technology seems imminent. To be precise, as recently as 2019, two key JPMorgan executives called Bitcoin a fraud, an asset that would only appreciate in a dystopian environment where confidence in all major reserve assets was lost. Three years later, the stance of the important US bank has taken a 180-degree turn. JPMorgan is believed to have a large stake in Consensys and showcased its Onyx lounge in Decentraland, becoming the first financial institution to officially open a space in Metaverse.

After two years of fighting the COVID-19 pandemic that has disrupted economies, supply chains and the lives of millions, Ukraine’s war is fighting one of the highest inflation periods in recent years in a more digital society. The financial implications of Russia’s decision will be felt years from now and could change the traditional financial ecosystem.

It is too early to tell the full impact of this conflict and how the world will react. Right now, we all want one thing: the war is over as soon as possible, with as few casualties as possible.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/how-russias-war-on-ukraine-and-the-wests-response-are-impacting-blockchain-technology/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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